Fed's preferred inflation gauge shows core prices rose 3.0% in August, below forecasts

The Federal Reserve's preferred inflation gauge showed core prices rose 3.0% in August from a year earlier, a notably lighter reading than economists had forecast heading into the report.

The personal consumption expenditures (PCE) price index, which the Fed uses as its primary measure of inflation, had been projected to show an annual gain of 3.7% on the headline measure and 3.3% on the core measure, which excludes volatile food and energy prices, according to the Dow Jones consensus estimate.

The cooler-than-expected core reading offers a data point suggesting that underlying price pressures may be moderating, even as the Fed continues to weigh the appropriate pace of monetary policy. The PCE index carries particular weight with policymakers because it accounts for shifts in consumer behavior, such as substituting cheaper goods for more expensive ones, in a way other inflation measures do not fully capture.

Inflation data releases like this one are closely watched by markets for signals about the future path of interest rates. A softer-than-expected reading can raise expectations that the central bank has more room to ease policy, while a hotter reading tends to reinforce a case for a more cautious approach.

The August PCE report adds to the broader picture investors and policymakers are piecing together about where inflation stands relative to the Fed's long-standing 2% target, with the data suggesting further, if still incomplete, progress toward that goal.